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Rayonier Reports Third Quarter 2004 Results

October 28, 2004

JACKSONVILLE, Fla.--(BUSINESS WIRE)--Oct. 28, 2004--Rayonier (NYSE:RYN) today reported third quarter net income of $24.2 million, or 47 cents per share. This compared to $43.7 million, or 86 cents per share, in second quarter 2004 and $8.1 million, or 19 cents per share, in third quarter 2003. Third quarter 2004 results include tax benefits from a like-kind exchange (LKE) transaction of $10 million, or 20 cents per share, while last year's quarter was impacted $3.3 million, or 8 cents per share, by costs associated with the company's conversion to a real estate investment trust (REIT).

Earnings were below second quarter primarily due to lower land sales, as expected, and reduced U.S. timber sales. Compared to third quarter 2003, earnings were significantly higher, primarily due to tax benefits and improved results for performance fibers, lumber and timber, partially offset by lower land sales.

Lee Nutter, Chairman, President and CEO said: "During the quarter, we experienced continued strong demand in all product areas and completed the $89 million, 83,000-acre Alabama timberland acquisition with internally generated funds. In addition, with our strong cash flow, we have paid $83 million in dividends year to date and ended the quarter with $42 million in cash and equivalents."

Cash provided by operating activities of $234 million in the first nine months was $61 million above the comparable period in 2003. Cash Available for Distribution (CAD) for the same period was $147 million, $36 million above 2003. Stronger cash flow was primarily due to substantially improved operating earnings and lower working capital requirements, partly offset by $20 million in discretionary pension contributions. (CAD is a non-GAAP measure defined and reconciled to GAAP in the attached exhibits.)

Sales of $279 million were $58 million below second quarter but $11 million above third quarter 2003.

Debt at quarter-end of $616 million was essentially unchanged from the second quarter but $3 million below year-end 2003. The debt-to-capital ratio declined to 43.7 percent from 44.1 percent and 46.5 percent at the end of second quarter 2004 and year-end 2003, respectively. The improvement from year-end 2003 was primarily due to the positive impact on shareholders' equity of the first quarter 2004 net tax benefit of 98 cents per share relating to the company's conversion to a REIT.

Timber and Land

Sales of $47 million and operating income of $18 million were $43 million and $38 million below second quarter, respectively, primarily due to lower land and U.S. timber sales. Compared to third quarter 2003, sales and operating income declined $13 million and $15 million, respectively, due to lower land sales partly offset by stronger timber prices. As the company has previously noted, it is normal for land sales to vary significantly from quarter to quarter and year to year given the complexity and timing of selling large tracts.

Performance Fibers

Sales of $143 million were $10 million below second quarter primarily due to timing, partly offset by stronger absorbent materials prices. Operating income of $17 million declined $2 million from second quarter mainly due to increased manufacturing costs, partly offset by improved sales mix and higher absorbent materials prices. Compared to third quarter 2003, sales and operating income increased by $11 million and $15 million, respectively, primarily due to higher cellulose specialties and absorbent materials prices and lower manufacturing costs.

Wood Products

Sales of $44 million and operating income of $4 million were both $1 million below second quarter, but $9 million and $5 million above third quarter 2003, respectively. The improvement over third quarter 2003 was primarily due to stronger lumber prices.

Other Operations

Sales of $46 million and operating income of $1 million decreased $5 million and $1 million, respectively, from second quarter due to lower trading activity and coal revenue. Compared to third quarter 2003, sales and operating income improved $4 million and $1 million, respectively, due to improved trading activity.

Other Items

Corporate expenses of $8 million were $1.7 million below second quarter primarily due to lower incentive compensation expenses and $3 million less than third quarter 2003, mainly due to the absence of REIT conversion costs. During the quarter, the company closed on the $89 million timberland acquisition which was structured as an LKE transaction. The acquisition served as replacement property for $35 million in land sales to third parties, most of which closed in earlier quarters. As a result of the LKE, the company realized tax benefits for the year of $11 million, or 22 cents per share (of which $10 million, or 20 cents per share, was realized in the third quarter). The third quarter LKE benefit, along with a $1.4 million benefit realized upon completion of the 2003 tax return, resulted in a net tax benefit of $3.8 million for the quarter. Through September 30, the annual effective tax rate, before discrete items, was 16.9 percent compared to 23.9 percent for the comparable period in 2003 (see Schedule I). The lower rate for 2004 is the result of tax benefits associated with the company's REIT structure and the recognition of LKE benefits. Last year's level was below the statutory rate primarily due to foreign and other tax credits.

Outlook

Fourth quarter 2004 earnings per share are expected to be well above pro forma fourth quarter 2003 (post the December 2003 special earnings-and-profits stock dividend) primarily due to higher performance fibers and Northwest timber prices, lower performance fibers manufacturing costs and increased land sales. Compared to the third quarter, excluding LKE benefits, earnings are expected to be somewhat lower primarily due to higher performance fibers raw material and energy costs and declining lumber prices, partially offset by increased land sales. Fourth quarter Southeast U.S. timber prices are expected to be lower than third quarter due to hurricane-related market conditions.

Nutter said: "For the first nine months of 2004, prices have improved in all of our businesses and demand has remained strong, especially for our higher value cellulose specialties and Northwest timber. While lumber prices are retreating somewhat, we continue to feel the positive impact of strong underlying demand for housing and remodeling in our timber and wood products businesses. With a strong balance sheet, we continue to explore ways of capitalizing on our REIT structure to further increase long-term shareholder value."

Rayonier has more than 2 million acres of timber and land in the U.S. and New Zealand and is the world's premier supplier of high performance specialty cellulose fibers. Approximately 40 percent of the company's sales are outside the U.S. to customers in more than 50 countries.

Reported results are preliminary and not final until filing of the third quarter 2004 Form 10-Q with the Securities and Exchange Commission and, therefore, remain subject to subsequent event adjustments. Comments about anticipated demand, pricing, volumes, expenses, earnings and land sales are forward-looking and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The following important factors, among others, could cause actual results to differ materially from those expressed in the forward-looking statements: changes in global market trends and world events; interest rate and currency movements; fluctuations in demand for or supply of cellulose specialties, absorbent materials, timber, wood products or real estate and entry of new competitors into these markets; adverse weather conditions affecting production, timber availability and sales, or distribution; changes in production costs for wood products or performance fibers, particularly for raw materials such as wood, energy and chemicals; unexpected delays in the closing of land sale transactions; changes in law or policy that might limit or restrict the development of real estate, particularly in the southeastern U.S.; the Company's ability to satisfy complex rules in order to qualify as a REIT; the availability of tax deductions and the ability of the company to complete tax-efficient exchanges of real estate; and implementation or revision of governmental policies and regulations affecting the environment, endangered species, import and export controls or taxes, including changes in tax laws that could reduce the benefits associated with REIT status. For additional factors that could impact future results, please see the company's most recent Form 10-K on file with the Securities and Exchange Commission.

A conference call will be held on Thursday, October 28 at 4:15 p.m. EDT to discuss these results. Interested parties are invited to listen to the live webcast by logging onto http://www.rayonier.com and following the link. Supplemental materials will be available at the website. A replay will be available on the site shortly after the call where it will be archived for one month. Also, investors may access the "listen only" conference call by dialing 913-981-5584.

For further information, visit the company's web site at http://www.rayonier.com. Complimentary copies of Rayonier press releases and other financial documents are also available by mail or fax by calling 1-800-RYN-7611.

                                RAYONIER
                         FINANCIAL HIGHLIGHTS
                     SEPTEMBER 30, 2004 (unaudited)

         (millions of dollars, except per share information)

                    Three Months Ended            Nine Months Ended
                ----------------------------  ------------------------
                Sept. 30, June 30, Sept. 30,     Sept. 30,  Sept. 30,
                  2004      2004     2003          2004        2003
                --------- -------- ---------  ------------  ----------
Profitability
 Sales            $278.9   $336.9    $267.6       $909.5      $829.4
 Operating income $ 31.2   $ 70.3    $ 21.7       $144.0      $ 94.9
  Net income      $ 24.2   $ 43.7    $  8.1       $143.4      $ 48.0
  Net income per
   diluted common
    share         $ 0.47   $ 0.86    $ 0.19       $ 2.82      $ 1.13
  Pro forma net
   income per
   diluted
   common
    share (a)(b)  $ 0.47   $ 0.86    $ 0.16       $ 1.84      $ 0.98
  Operating income
   as a percent of
   sales            11.2%    20.9%      8.1%        15.8%       11.4%
  ROE (annualized)
   (a)(c)           12.8%    17.4%      0.6%        15.4%        6.8%


                              Nine Months Ended September 30,
                              -------------------------------
                                    2004           2003
                                  --------       --------
Capital Resources and Liquidity
   Cash provided by
    operating activities           $ 234.1       $ 172.8
   Cash used for
    investing activities           $(142.8)      $ (58.7)
   Cash used for
    financing activities           $ (71.4)      $ (46.5)
   Cash Available for
    Distribution (CAD)(d)(f)       $ 146.9       $ 110.5
   Adjusted EBITDA (e)(f)          $ 271.5       $ 222.2
   Repayment of debt, net          $   2.8       $  32.7
   Debt                            $ 615.5       $ 620.4
   Debt / capital                     43.7%         44.9%


(a) Nine months ended September 30, 2004 excludes first quarter
reversal of deferred taxes not required after REIT conversion of $77.9
million, or $1.53 per share and additional taxes for repatriation of
foreign earnings of ($28.2) million, or ($0.55) per share, for a net
effect of $49.7 million, or $0.98 per share. See reconciliation on
Schedule G.

(b) 2003 per share data has been restated for the December 19,
2003 15.1% special dividend.

(c) Major land sales and REIT conversion costs are not annualized.

(d) Cash Available for Distribution (CAD) is defined as cash
provided by operating activities less both custodial and discretionary
capital spending and less the tax benefit on the exercise of stock
options. Cash Available for Distribution is a non-GAAP measure of cash
generated during a period that is available for dividend distribution,
repurchase of the Company's common shares, debt reduction and for
strategic acquisitions net of associated financing. See reconciliation
on Schedule G.

(e) Adjusted EBITDA is defined as earnings from continuing
operations before interest expense, income taxes, depreciation,
depletion, amortization and the non-cash cost basis of land sold.
Adjusted EBITDA is a non-GAAP measure of operating cash generating
capacity of the Company. See reconciliation on Schedule H.

(f) Management considers these measures to be important to
estimate the enterprise and shareholder values of the Company as a
whole and of its core segments, and for allocating capital resources.


                                 - A -



                                RAYONIER
               CONDENSED STATEMENTS OF CONSOLIDATED INCOME
                       SEPTEMBER 30, 2004 (unaudited)

          (millions of dollars, except per share information)

                    Three Months Ended            Nine Months Ended
                ----------------------------  ------------------------
                Sept. 30, June 30, Sept. 30,     Sept. 30,  Sept. 30,
                  2004      2004     2003          2004        2003
                --------- -------- ---------  ------------  ----------

Sales            $278.9    $336.9   $267.6        $909.5      $829.4
                --------- -------- ---------  ------------  ----------
Costs and expenses
  Cost of sales   236.5     252.0    231.8         722.9       701.4
  Selling and
   general
    expenses       13.0      14.7     16.1          45.8        39.1
  Other
   operating
   expense
    (income)       (1.8)     (0.1)    (2.0)         (3.2)       (6.0)
                --------- -------- ---------  ------------  ----------
Operating income   31.2       70.3    21.7         144.0        94.9

Interest expense  (11.5)     (12.1)  (12.1)        (34.7)      (36.9)
Interest and
 miscellaneous
 income(expense),
  net               0.7        0.4     0.8           1.8         2.3
                --------- -------- ---------  ------------  ----------
Income before
 taxes             20.4       58.6    10.4         111.1        60.3
Income tax
 (expense)
 benefit (a)        3.8      (14.9)   (2.3)         32.3       (12.3)
                --------- -------- ---------  ------------  ----------
Net income (a)   $ 24.2     $ 43.7  $  8.1        $143.4     $  48.0
                ========= ======== =========  ============  ==========

Net income per
 Common Share
  Basic EPS      $ 0.48     $ 0.88  $ 0.19        $ 2.89     $  1.15
                ========= ======== =========  ============  ==========
  Diluted EPS    $ 0.47     $ 0.86  $ 0.19        $ 2.82     $  1.13
                ========= ======== =========  ============  ==========

Pro forma net
 income per
 Common
  Share (b)(c)
  Adjusted basic
   EPS           $ 0.48     $ 0.88  $ 0.17        $ 1.88     $  1.00
                ========= ======== =========  ============  ==========
  Adjusted
   diluted EPS   $ 0.47     $ 0.86  $ 0.16        $ 1.84     $  0.98
                ========= ======== =========  ============  ==========

Weighted average
 Common Shares
 used for
  determining
  Basic EPS  49,720,050  49,557,582 42,133,413  49,539,375  41,867,879
             ==========  ========== ==========  ==========  ==========
  Diluted
   EPS       51,123,431  50,891,616 42,963,352  50,934,033  42,557,905
             ==========  ========== ==========  ==========  ==========

(a) Nine months ended September 30, 2004 includes reversal of
deferred taxes not required after REIT conversion of $77.9 million and
additional taxes for repatriation of foreign earnings of ($28.2)
million.

(b) Nine months ended September 30, 2004 excludes reversal of
deferred taxes not required after REIT conversion of $1.58 per basic
share and $1.53 per diluted share and additional taxes for
repatriation of foreign earnings of ($0.57) per basic share and
($0.55) per diluted share, for a net of $1.01 per basic share and
$0.98 per diluted share. See reconciliation on Schedule G.

(c) For the three and nine months ended September 30, 2003 per
share data has been restated for the December 19, 2003 15.1% special
dividend.


                                 - B -



                                RAYONIER
            BUSINESS SEGMENT SALES AND OPERATING INCOME (LOSS)
                     SEPTEMBER 30, 2004 (unaudited)

                         (millions of dollars)


                    Three Months Ended            Nine Months Ended
                -----------------------------  -----------------------
                Sept. 30, June 30,  Sept. 30,    Sept. 30,  Sept. 30,
                  2004      2004      2003         2004        2003
                --------- -------- ----------  -----------  ----------

Sales
 Timber and Land
  Timber         $ 39.2    $ 49.3    $ 32.5       $141.6      $114.6
  Land              7.3      40.4      26.8         81.0        97.5
                --------- -------- ----------  -----------  ----------
    Total Timber
     and Land      46.5      89.7      59.3        222.6       212.1
                --------- -------- ----------  -----------  ----------
 Performance
  Fibers
  Cellulose
   specialties    103.3     107.2      94.3        303.6       273.1
  Absorbent
   materials       39.4      45.2      37.6        124.4       119.4
                --------- -------- ----------  -----------  ----------
    Total
     Performance
      Fibers      142.7     152.4     131.9        428.0       392.5
                --------- -------- ----------  -----------  ----------

 Wood Products
  Lumber           33.2      34.5      24.6         95.3        66.8
  MDF              11.0      10.3      11.0         31.2        30.2
                --------- -------- ----------  -----------  ----------
    Total Wood
     Products      44.2      44.8      35.6        126.5        97.0
                --------- -------- ----------  -----------  ----------
 Other Operations  45.8      50.3      41.6        133.0       129.3

 Intersegment
  eliminations     (0.3)     (0.3)     (0.8)        (0.6)       (1.5)
                --------- -------- ----------  -----------  ----------
    Total sales  $278.9    $336.9    $267.6       $909.5      $829.4
                ========= ======== ==========  ===========  ==========

Operating income
 (loss)
 Timber and Land
  Timber         $ 12.6    $ 20.1    $  8.5       $ 55.5      $ 36.8
  Land              4.9      35.0      23.6         63.6        80.3
                --------- -------- ----------  -----------  ----------
    Total Timber
     and Land      17.5      55.1      32.1        119.1       117.1

 Performance
  Fibers           16.7      18.4       1.6         41.2         3.1

 Wood Products
  Lumber            5.2       6.4       0.6         13.0        (3.5)
  MDF              (1.3)     (1.2)     (1.4)        (3.2)       (1.6)
                --------- -------- ----------  -----------  ----------
    Total Wood
     Products       3.9       5.2      (0.8)         9.8        (5.1)
                --------- -------- ----------  -----------  ----------

 Other Operations   0.8       1.9      (0.3)         5.0        (1.1)

 Corporate         (8.0)     (9.7)    (11.0)       (30.9)      (23.9)

 Intersegment
  eliminations
  and other
  (Including
   Corporate FX)    0.3      (0.6)      0.1         (0.2)        4.8
                --------- -------- ----------  -----------  ----------
    Total
     operating
      income     $ 31.2    $ 70.3    $ 21.7       $144.0      $ 94.9
                ========= ======== ==========  ===========  ==========


                                 - C -



                              RAYONIER
  CONDENSED CONSOLIDATED BALANCE SHEETS AND STATEMENTS OF CASH FLOWS
                    SEPTEMBER 30, 2004  (unaudited)
                         (millions of dollars)

CONDENSED CONSOLIDATED BALANCE SHEETS
                                          September 3O ,  December 31,
                                              2004           2003
                                          -------------   ------------
 Assets
 Current assets                           $   281.3       $   244.6
 Timber, timberlands and logging roads,
  net of depletion and amortization         1,057.4           994.8
 Property, plant and equipment              1,434.7         1,414.5
 Less accumulated depreciation                973.3           912.3
                                          -------------   ------------
                                              461.4           502.2
                                          -------------   ------------
 Other assets                                 114.5            97.1
                                          -------------   ------------
                                          $ 1,914.6       $ 1,838.7
                                          =============   ============
 Liabilities and Shareholders' Equity
 Current liabilities                      $   200.7       $   147.3
 Deferred income taxes                         71.4           121.8
 Long-term debt                               611.9           614.9
 Non-current reserves for dispositions
  and discontinued operations                 132.0           140.2
 Other non-current liabilities                106.2           103.4
 Shareholders' equity                         792.4           711.1
                                          -------------   ------------
                                          $ 1,914.6       $ 1,838.7
                                          =============   ============

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                 Nine Months Ended
                                          ----------------------------
                                          September 30,  September 30,
                                              2004            2003
                                          -------------  -------------
 Cash provided by operating activities:
  Net Income                              $   143.4      $     48.0
  Depreciation, depletion, amortization
   and non-cash cost basis of land sold       125.6           125.1
  Other non-cash items included in income     (46.3)(1)         6.8
  Changes in working capital and other
   assets and liabilities                      11.4            (7.1)
                                          -------------   ------------
                                              234.1           172.8
                                          -------------   ------------

 Cash used for investing activities:
  Capital expenditures, net of
   sales and retirements                      (53.6)          (53.3)
  Purchase of assets previously leased            -            (5.4)
  Purchase of Alabama timberlands             (89.2)              -
                                          -------------   ------------
                                             (142.8)          (58.7)
                                          -------------   ------------
 Cash used for financing activities:
  Repayment of debt, net                       (2.8)          (32.7)
  Dividends paid                              (83.3)          (32.9)
  Shares issued                                14.7            19.1
                                          -------------   ------------
                                              (71.4)          (46.5)
                                          -------------   ------------
 Effect of exchange rate changes on cash        0.3            (0.1)
                                          -------------   ------------
 Cash and cash equivalents:
  Increase in cash and cash equivalents        20.2            67.5
  Balance, beginning of year                   21.4            18.9
                                          -------------   ------------
  Balance, end of period                  $    41.6       $    86.4
                                          =============   ============

(1) Mainly reversal of deferred taxes not required after REIT
conversion of ($77.9) million and additional taxes for repatriation of
foreign earnings of $28.2 million.


                                 - D -



                                RAYONIER
                 SELECTED SUPPLEMENTAL FINANCIAL DATA
                     SEPTEMBER 30, 2004 (unaudited)

                          (millions of dollars)


                    Three Months Ended            Nine Months Ended
                -----------------------------  -----------------------
                Sept. 30, June 30,  Sept. 30,    Sept. 30,  Sept. 30,
                  2004      2004      2003         2004        2003
                --------- -------- ----------  -----------  ----------

Geographical Data
 (Non-U.S.)
 Sales
  New Zealand    $23.3      $24.3     $23.0        $67.4      $63.5
  Other            7.1        9.4       1.7         22.5        9.2
                --------- -------- ----------  -----------  ----------
   Total         $30.4      $33.7     $24.7        $89.9      $72.7
                ========= ======== ==========  ===========  ==========

 Operating income
  (loss)
  New Zealand     $2.0       $0.2      $0.6         $1.2       $3.8
  Other           (1.0)      (0.5)     (0.6)        (2.0)      (1.5)
                --------- -------- ----------  -----------  ----------
   Total          $1.0      $(0.3)     $  -        $(0.8)      $2.3
                ========= ======== ==========  ===========  ==========

Timber
 Sales
  Northwest
   U.S.          $17.0      $22.0      $8.9        $63.2      $44.2
  Southeast
   U.S.           14.9       20.6      18.3         59.0       56.0
  New Zealand      7.3        6.7       5.3         19.4       14.4
                --------- -------- ----------  -----------  ----------
   Total         $39.2      $49.3     $32.5       $141.6     $114.6
                ========= ======== ==========  ===========  ==========

 Operating income
  Northwest
   U.S.          $ 8.0      $11.9     $ 1.6       $ 33.8     $ 21.5
  Southeast
   U.S.            2.7        6.2       4.0         17.2       12.1
  New Zealand      1.9        2.0       2.9          4.5        3.2
                --------- -------- ----------  -----------  ----------
   Total         $12.6      $20.1     $ 8.5       $ 55.5     $ 36.8
                ========= ======== ==========  ===========  ==========

Adjusted EBITDA by
 Segment
 Timber and
  Land           $30.1      $73.6     $48.1       $173.6     $174.2
 Performance
  Fibers          37.2       39.1      22.0        100.8       61.8
 Wood Products     8.3        9.2       2.8         21.6        4.5
 Other Operations  1.2        2.4      (0.1)         5.9       (0.6)
 Corporate and
  other           (7.3)     (10.5)    (10.8)       (30.4)     (17.7)
                --------- -------- ----------  -----------  ----------
   Total         $69.5     $113.8     $62.0       $271.5     $222.2
                ========= ======== ==========  ===========  ==========


                                 - E -



                                RAYONIER
                     SELECTED OPERATING INFORMATION
                     SEPTEMBER 30, 2004 (unaudited)


                    Three Months Ended            Nine Months Ended
                -----------------------------  -----------------------
                Sept. 30, June 30,  Sept. 30,    Sept. 30,  Sept. 30,
                  2004      2004      2003         2004        2003
                --------- -------- ----------  -----------  ----------

Timber and Land
 Sales volume -
  Timber
  Northwest U.S.,
   in millions
   of board feet    61        81       34           230         178
  Southeast U.S.,
   in thousands
   of short
    green tons     842     1,140    1,150         3,231       3,488
  New Zealand,
   in thousands
   of metric tons  173       158      187           437         446

 Timber sales
  volume -
   Intercompany
  Southeast U.S.,
   in thousands
   of short
    green tons       8        21       19            29          24
  New Zealand,
   in thousands
   of metric tons    7         -       40             7          85

 Acres sold      2,173     4,796(1) 5,745        24,019(1)   37,868

Performance Fibers
 Sales Volume
  Cellulose
   specialties,
   in thousands
   of metric
    tons           112       115      109           328         314
  Absorbent
   materials,
   in thousands
   of metric tons   61        75       62           204         209
  Production as a
   percent of
    capacity      98.5%     99.8%    97.6%         98.9%       97.2%

Wood Products
 Lumber sales
  volume, in
  millions of
   board feet       87        91       78           261         222
 Medium-density
  fiberboard sales
  volume, in
  thousands of
   cubic meters     41        40       49           120         131

(1) Excludes 5,487 acres associated with a Northeast Florida sale
($26 million) of timber lease rights.


                                 - F -



                                RAYONIER
                  RECONCILIATION OF NON-GAAP MEASURES
                     SEPTEMBER 30, 2004 (unaudited)

          (millions of dollars, except per share information)

                                           Nine Months Ended
                                     ----------------------------
                                     September 30,  September 30,
                                         2004           2003
                                     -------------  -------------

Cash Available for Distribution (CAD)
Cash provided by operating activities    $234.1        $172.8
Capital spending (a)                      (53.6)        (53.3)
Purchase of assets previously leased          -          (5.4)
Like-kind exchange tax benefits on
 third party land sales (b)                (9.9)            -
Like-kind exchange tax benefits on
 intercompany land sales (b)              (20.2)            -
Tax benefit on exercise of stock options   (3.5)         (3.6)
                                     -------------  -------------
Cash Available for Distribution (CAD)    $146.9        $110.5
                                     =============  =============

(a) Capital Spending is net of proceeds from sales and
retirements.

(b) Represents taxes that would have been paid if the Company had
not completed LKE transactions.


                    Three Months Ended            Nine Months Ended
                -----------------------------  -----------------------
                Sept. 30, June 30,  Sept. 30,    Sept. 30,  Sept. 30,
                  2004      2004      2003         2004        2003
                --------- -------- ----------  -----------  ----------
Net income per
 Common Share
  Basic EPS      $0.48      $0.88     $0.19        $2.89      $1.15
                ========= ======== ==========  ===========  ==========
  Diluted EPS    $0.47      $0.86     $0.19        $2.82      $1.13
                ========= ======== ==========  ===========  ==========

  Deferred taxes
   not required
   after REIT
    conversion
  Basic EPS          -          -         -        (1.58)         -
                ========= ======== ==========  ===========  ==========
  Diluted EPS        -          -         -        (1.53)         -
                ========= ======== ==========  ===========  ==========

  Additional taxes for
   repatriation of
    foreign earnings
  Basic EPS          -          -         -         0.57          -
                ========= ======== ==========  ===========  ==========
  Diluted EPS        -          -         -         0.55          -
                ========= ======== ==========  ===========  ==========

  Impact of
  December 19,
  2003 15.1%
  special
  dividend
  Basic EPS          -          -     (0.02)           -      (0.15)
                ========= ======== ==========  ===========  ==========
  Diluted EPS        -          -     (0.03)           -      (0.15)
                ========= ======== ==========  ===========  ==========

Pro forma net
 income per Common
  Share
  Adjusted basic
  EPS              0.48      0.88      0.17         1.88       1.00
                ========= ======== ==========  ===========  ==========
  Adjusted
   diluted EPS     0.47      0.86      0.16         1.84       0.98
                ========= ======== ==========  ===========  ==========


                                 - G -



                                RAYONIER
                RECONCILIATION OF NON-GAAP MEASURES (1)
                     SEPTEMBER 30, 2004  (unaudited)

                          (millions of dollars)

            Timber                                    Corporate
             and    Performance   Wood       Other      and
             Land     Fibers     Products  Operations   other   Total
            ------  -----------  --------  ---------- --------- -----
Adjusted
 EBITDA

Three Months
   Ended
September 30,
   2004
Cash provided
 by operating
  activities  $26.9     $47.0      $9.1        $6.3    $(12.9)  $76.4
Income tax
 benefit          -         -         -           -      (3.8)  $(3.8)
Interest
 expense          -         -         -           -      11.5   $11.5
Working
 capital
 increases
  (decreases)  (0.1)     (9.5)     (0.7)       (5.2)     (6.3)  (21.8)
Other
 balance
 sheet
  changes       3.3      (0.3)     (0.1)        0.1       4.2     7.2
              -------   -------   --------     ------    ------  -----
Adjusted
 EBITDA       $30.1     $37.2      $8.3        $1.2     $(7.3)  $69.5
              =======   =======   ========     ======    ======  =====

June 30, 2004
Cash provided
 by operating
 activities   $80.0     $30.6      $8.0       $(0.7)   $(42.2)  $75.7
Income tax
 expense          -         -         -           -      14.9   $14.9
Interest
 expense          -         -         -           -      12.1   $12.1
Working
 capital
 increases
 (decreases)   (3.6)      8.3       1.2         3.3       4.3    13.5
Other
 balance
 sheet
 changes       (2.8)      0.2         -        (0.2)      0.4    (2.4)
              -------   -------   --------     ------    ------  -----
  Adjusted
   EBITDA     $73.6     $39.1      $9.2        $2.4    $(10.5)  $113.8
              =======   =======   ========     ======    ======  =====

September 30,
   2003
Cash provided
 by operating
  activities  $63.7     $14.4      $3.1       $(0.5)   $(16.7)  $64.0
Income tax
 expense          -         -         -           -       2.3    $2.3
Interest
 expense          -         -         -           -      12.1   $12.1
Working
 capital
 increases
 (decreases)  (11.0)      7.9      (0.2)        0.4     (14.8)  (17.7)
Other
 balance
 sheet
  changes      (4.6)     (0.3)     (0.1)          -       6.3     1.3
              -------   -------   --------     ------    ------  -----
Adjusted
 EBITDA       $48.1     $22.0      $2.8       $(0.1)   $(10.8)  $62.0
              =======   =======   ========     ======    ======  =====

Nine Months
  Ended
September 30,
  2004
Cash provided
 by operating
  activities $180.9     $93.3     $18.5       $12.2    $(70.8)  $234.1
Income tax
 benefit          -         -         -           -     (32.3)  (32.3)
Interest
 expense          -         -         -           -      34.7    34.7
Working
 capital
 increases
 (decreases)  (11.5)      6.4       3.3        (5.7)   (19.4)(a)(26.9)
Other
 balance
 sheet
 changes        4.2       1.1      (0.2)       (0.6)     57.4(b) 61.9
              -------   -------   --------     ------    ------  -----
Adjusted
 EBITDA      $173.6    $100.8     $21.6        $5.9    $(30.4)  $271.5
              =======   =======   ========     ======    ====== ======

September 30,
   2003
Cash provided
 by operating
  activities $193.5     $51.5      $1.3        $5.7    $(79.2)  $172.8
Income tax
 expense          -         -         -           -      12.3     12.3
Interest
 expense          -         -         -           -      36.9     36.9
Working
 capital
 increases
  (decreases) (12.4)     10.8       3.4        (6.7)     10.2      5.3
Other
 balance
 sheet
  changes      (6.9)     (0.5)     (0.2)        0.4       2.1    (5.1)
              -------   -------   --------     ------    ------  -----
Adjusted
 EBITDA      $174.2     $61.8      $4.5       $(0.6)   $(17.7)  $222.2
              =======   =======   ========     ======    ====== ======

(1) Unusual, non-trade intercompany items between the segments
have been eliminated.

(a) Mainly higher taxes and interest.

(b) Includes reversal of deferred taxes not required after REIT
conversion partly offset by additional taxes for repatriation of
foreign earnings.


                                 - H -



                                RAYONIER
    RECONCILIATION OF STATUTORY INCOME TAX TO REPORTED INCOME TAX
                     SEPTEMBER 30, 2004  (unaudited)

               (millions of dollars, except percentages)

                           Three Months Ended
              -----------------------------------------------
              September 30,      June 30,       September 30,
                 2004              2004             2003
              -------------    -------------    -------------
                $       %        $       %        $       %
              -------------    -------------    -------------
Income tax
 provision
 at the
 U.S.
 statutory
 rate         $7.1    35.0     $20.6   35.0     $3.6     35.0

REIT income
 not subject
 to federal
  tax         (9.7)  (47.6)    (14.2) (24.2)       -        -

Lost deduction
 on REIT
 interest
 expense
 and overhead
 expenses
 associated
 with REIT
  activities   1.7     8.4       6.5   11.3        -        -

State and
 local
 income taxes,
 foreign
 exchange
 rate changes
 and
 permanent
  differences (3.1)  (15.5)      3.6    6.1     (1.6)   (15.2)
              -----  ------    ------  -----    -----   ------

Income tax
 (benefit)
 expense
 before
 discrete
  items (1)  $(4.0)  (19.7)    $16.5   28.2     $2.0     19.8

Exchange
 rate
 changes
 on tax on
 undistributed
 foreign
  earnings     1.6     7.9      (1.6)  (2.8)       -        -

Return to
 accrual
  adjustment  (1.4)   (6.8)        -      -      0.3      2.4

Tax benefit
 from interim
 partial IRS
 audit
  settlement     -       -         -      -        -        -
              ----    ----      ----   ----     ----    -----

Income tax
 (benefit)
 expense (1) $(3.8)  (18.6)    $14.9   25.4     $2.3     22.2
             ======  ======    =====   ====     ====     ====


                                 Nine Months Ended
                         ---------------------------------
                         September 30,       September 30,
                            2004                 2003
                         -------------       -------------
                           $       %           $       %
                         -------------       -------------

Income tax provision
 at the U.S. statutory
  rate                   $38.9    35.0       $21.1    35.0

REIT income not
 subject to federal tax  (30.8)  (27.8)          -       -

Lost deduction on
 REIT interest expense
 and overhead expenses
 associated with REIT
  activities              10.0     9.1           -       -

State and local
 income taxes,
 foreign exchange
 rate changes and
 permanent differences     0.7     0.6        (6.8)  (11.1)
                         ------   ------      -----   -----

Income tax (benefit)
 expense before discrete
  items (1)              $18.8    16.9       $14.3    23.9

Exchange rate changes
 on tax on undistributed
  foreign earnings           -       -           -       -

Return to accrual
 adjustment               (1.4)   (1.2)        0.3     0.4

Tax benefit from
 interim partial
 IRS audit settlement        -        -       (2.3)   (3.9)
                         ------   ------      -----   -----

Income tax (benefit)
 expense (1)             $17.4     15.7      $12.3    20.4
                         ======   ======      =====   =====

(1) Nine months ended September 30, 2004 exclude first quarter
reversal of deferred taxes not required after REIT conversion of
($77.9) million and additional taxes for repatriation of foreign
earnings of $28.2 million.


                                 - I -

CONTACT:
Rayonier, Jacksonville
Media Contact:
Jay Fredericksen, 904-357-9106
or
Investor Contact:
Parag Bhansali, 904-357-9155

SOURCE: Rayonier

Contact

Mark McHugh

Senior Vice President and Chief Financial Officer

Phone: (904) 357-9100

investorrelations@rayonier.com

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